021218
C. ENTITLEMENT OF CORPORATION TO MORAL
DAMAGES
LBC EXPRESS, INC. VS. COURT OF APPEALS, G.R. NO.
108670, 236 SCRA 602 , SEPTEMBER 21, 1994
Facts: Private respondent Adolfo Carloto, incumbent
President-Manager of private respondent Rural Bank of
Labason, alleged that on November 12, 1984, he was in
Cebu City transacting business with the Central Bank
Regional Office. He was instructed to proceed to Manila
on or before November 21, 1984 to follow-up the Rural
Bank's plan of payment of rediscounting obligations
with Central Bank's main office in Manila. 2 He then
purchased a round trip plane ticket to Manila. He also
phoned his sister Elsie Carloto-Concha to send him ONE
THOUSAND PESOS (P1,000.00) for his pocket money in
going to Manila and some rediscounting papers thru
petitioner's LBC Office at Dipolog City. 3
On November 16, 1984, Mrs. Concha thru her clerk,
Adelina Antigo consigned thru LBC Dipolog Branch the
pertinent documents and the sum of ONE THOUSAND
PESOS (P1,000.00) to respondent Carloto at No. 2
Greyhound Subdivision, Kinasangan, Pardo, Cebu City.
This was evidenced by LBC Air Cargo, Inc., Cashpack
Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without
the cashpack. Respondent Carloto made personal
follow-ups on that same day, and also on November 19
and 20, 1984 at LBC's office in Cebu but petitioner failed
to deliver to him the cashpack.
Consequently, respondent Carloto said he was
compelled to go to Dipolog City on November 24, 1984
to claim the money at LBC's office. His effort was once
more in vain. On November 27, 1984, he went back to
Cebu City at LBC's office. He was, however, advised that
the money has been returned to LBC's office in Dipolog
City upon shipper's request. Again, he demanded for
the ONE THOUSAND PESOS (P1,000.00) and refund of
FORTY-NINE PESOS (P49.00) LBC revenue charges. He
received the money only on December 15, 1984 less the
revenue charges.
Respondent Carloto claimed that because of the delay
in the transmittal of the cashpack, he failed to submit
the rediscounting documents to Central Bank on time.
As a consequence, his rural bank was made to pay the
Central Bank THIRTY-TWO THOUSAND PESOS
(P32,000.00) as penalty interest. 4 He allegedly suffered
embarrassment and humiliation.
Petitioner LBC, on the other hand, alleged that the
cashpack was forwarded via PAL to LBC Cebu City
branch on November 22, 1984. 5 On the same day, it
was delivered at respondent Carloto's residence at No.
2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City.
However, he was not around to receive it. The delivery
man served instead a claim notice to insure he would
personally receive the money. This was annotated on
Cashpack Delivery Receipt No. 342805. Notwithstanding
the said notice, respondent Carloto did not claim the
cashpack at LBC Cebu. On November 23, 1984, it was
returned to the shipper, Elsie Carloto-Concha at Dipolog
City.
Claiming that petitioner LBC wantonly and recklessly
disregarded its obligation, respondent Carloto instituted
an action for Damages Arising from Non-performance of
Obligation docketed as Civil Case No. 3679 before the
Regional Trial Court of Dipolog City on January 4, 1985.
On June 25, 1988, an amended complaint was filed
where respondent rural bank joined as one of the
plaintiffs and prayed for the reimbursement of THIRTY-
TWO THOUSAND PESOS (P32,000.00).
Issues/s:
1. Whether or not respondent Rural Bank of Labason
Inc., being an artificial person should be awarded moral
damages.
2. Whether or not the award of THIRTY-TWO
THOUSAND PESOS (P32,000.00) was made with grave
abuse of discretion.
3. Whether or not the respondent Court of Appeals
gravely abused its discretion in affirming the trial court's
decision ordering petitioner LBC to pay moral and
exemplary damages despite performance of its
obligation.
The respondent court erred in awarding moral damages
to the Rural Bank of Labason, Inc., an artificial person.
Moral damages are granted in recompense for physical
suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. 7 A corporation,
being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no
senses; therefore, it cannot experience physical
suffering and mental anguish. 8 Mental suffering can be
experienced only by one having a nervous system and it
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flows from real ills, sorrows, and griefs of life 9 — all of
which cannot be suffered by respondent bank as an
artificial person.
We can neither sustain the award of moral damages in
favor of the private respondents. The right to recover
moral damages is based on equity. Moral damages are
recoverable only if the case falls under Article 2219 of
the Civil Code in relation to Article 21. 10 Part of
conventional wisdom is that he who comes to court to
demand equity, must come with clean hands.
In the case at bench, respondent Carloto is not without
fault. He was fully aware that his rural bank's obligation
would mature on November 21, 1984 and his bank has
set aside cash for these bills payable. 11 He was all set
to go to Manila to settle this obligation. He has received
the documents necessary for the approval of their
rediscounting application with the Central Bank. He has
also received the plane ticket to go to Manila.
Nevertheless, he did not immediately proceed to Manila
but instead tarried for days allegedly claiming his ONE
THOUSAND PESOS (P1,000.00) pocket money. Due to
his delayed trip, he failed to submit the rediscounting
papers to the Central Bank on time and his bank was
penalized THIRTY-TWO THOUSAND PESOS (P32,000.00)
for failure to pay its obligation on its due date. The
undue importance given by respondent Carloto to his
ONE THOUSAND PESOS (P1,000.00) pocket money is
inexplicable for it was not indispensable for him to
follow up his bank's rediscounting application with
Central Bank. According to said respondent, he needed
the money to "invite people for a snack or dinner." 12
The attitude of said respondent speaks ill of his ways of
business dealings and cannot be countenanced by this
Court. Verily, it will be revolting to our sense of ethics to
use it as basis for awarding damages in favor of private
respondent Carloto and the Rural Bank of Labason, Inc.
We also hold that respondents failed to show that
petitioner LBC's late delivery of the cashpack was
motivated by personal malice or bad faith, whether
intentional or thru gross negligence. In fact, it was
proved during the trial that the cashpack was consigned
on November 16, 1984, a Friday. It was sent to Cebu on
November 19, 1984, the next business day. Considering
this circumstance, petitioner cannot be charged with
gross neglect of duty. Bad faith under the law can not
be presumed; it must be established by clearer and
convincing evidence. 13 Again, the unbroken
jurisprudence is that in breach of contract cases where
the defendant is not shown to have acted fraudulently
or in bad faith, liability for damages is limited to the
natural and probable consequences of the branch of the
obligation which the parties had foreseen or could
reasonable have foreseen. The damages, however, will
not include liability for moral damages. 14
Prescinding from these premises, the award of
exemplary damages made by the respondent court
would have no legal leg to support itself. Under Article
2232 of the Civil Code, in a contractual or quasi-
contractual relationship, exemplary damages may be
awarded only if the defendant had acted in "a wanton,
fraudulent, reckless, oppressive, or malevolent
manner." The established facts of not so warrant the
characterization of the action of petitioner LBC.
ABS-CBN BROADCASTING CORPORATION VS COURT OF
APPEALS
Facts: In 1992, ABS-CBN Broadcasting Corporation,
through its vice president Charo Santos-Concio,
requested Viva Production, Inc. to allow ABS-CBN to air
at least 14 films produced by Viva. Pursuant to this
request, a meeting was held between Viva’s
representative (Vicente Del Rosario) and ABS-CBN’s
Eugenio Lopez (General Manager) and Santos-Concio
was held on April 2, 1992. During the meeting Del
Rosario proposed a film package which will allow ABS-
CBN to air 104 Viva films for P60 million. Later, Santos-
Concio, in a letter to Del Rosario, proposed a
counterproposal of 53 films (including the 14 films
initially requested) for P35 million. Del Rosario
presented the counter offer to Viva’s Board of Directors
but the Board rejected the counter offer. Several
negotiations were subsequently made but on April 29,
1992, Viva made an agreement with Republic
Broadcasting Corporation (referred to as RBS – or GMA
7) which gave exclusive rights to RBS to air 104 Viva
films including the 14 films initially requested by ABS-
CBN.
ABS-CBN now filed a complaint for specific performance
against Viva as it alleged that there is already a
perfected contract between Viva and ABS-CBN in the
April 2, 1992 meeting. Lopez testified that Del Rosario
agreed to the counterproposal and he (Lopez) even put
the agreement in a napkin which was signed and given
to Del Rosario. ABS-CBN also filed an injunction against
RBS to enjoin the latter from airing the films. The
injunction was granted. RBS now filed a countersuit
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with a prayer for moral damages as it claimed that its
reputation was debased when they failed to air the
shows that they promised to their viewers. RBS relied
on the ruling in People vs Manero and Mambulao
Lumber vs PNB which states that a corporation may
recover moral damages if it “has a good reputation that
is debased, resulting in social humiliation”. The trial
court ruled in favor of Viva and RBS. The Court of
Appeals affirmed the trial court.
ISSUE:
1. Whether or not a contract was perfected in the
April 2, 1992 meeting between the representatives of
the two corporations.
2. Whether or not a corporation, like RBS, is entitled
to an award of moral damages upon grounds of
debased reputation.
HELD:
1. No. There is no proof that a contract was perfected in
the said meeting. Lopez’ testimony about the contract
being written in a napkin is not corroborated because
the napkin was never produced in court. Further, there
is no meeting of the minds because Del Rosario’s offer
was of 104 films for P60 million was not accepted. And
that the alleged counter-offer made by Lopez on the
same day was not also accepted because there’s no
proof of such. The counter offer can only be deemed to
have been made days after the April 2 meeting when
Santos-Concio sent a letter to Del Rosario containing
the counter-offer. Regardless, there was no showing
that Del Rosario accepted. But even if he did accept,
such acceptance will not bloom into a perfected
contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter
into contracts; are exercised by the Board of Directors.
But this power may be delegated to a corporate
committee, a corporate officer or corporate manager.
Such a delegation must be clear and specific. In the case
at bar, there was no such delegation to Del Rosario. The
fact that he has to present the counteroffer to the
Board of Directors of Viva is proof that the contract
must be accepted first by the Viva’s Board. Hence, even
if Del Rosario accepted the counter-offer, it did not
result to a contract because it will not bind Viva sans
authorization.
2. No. The award of moral damages cannot be granted
in favor of a corporation because, being an artificial
person and having existence only in legal
contemplation, it has no feelings, no emotions, no
senses, It cannot, therefore, experience physical
suffering and mental anguish, which call be experienced
only by one having a nervous system. No moral
damages can be awarded to a juridical person. The
statement in the case of People vs Manero and
Mambulao Lumber vs PNB is a mere obiter dictum
hence it is not binding as a jurisprudence.
D. ENTITLEMENT TO CONSTITUTIONAL GUARANTEES;
CRIMINAL LIABILITY; CIVIL LIABILITY FOR TORT
STONEHILL VS DIOKNO
20 SCRA 383
Facts: Respondents herein secured a total of 42 search
warrants against petitioners herein and/or the
corporations of which they were officers, to search
“books of accounts, financial records, vouchers,
correspondence, receipts, ledgers, journals, portfolios,
credit journals, typewriters, and other documents
and/or papers showing all business transactions
including disbursements receipts, balance sheets and
profit and loss statements and Bobbins (cigarette
wrappers),” as “the subject of the offense; stolen or
embezzled and proceeds or fruits of the offense,” or
“used or intended to be used as the means of
committing the offense,” which is described in the
applications adverted to above as “violation of Central
Bank Laws, Tariff and Customs Laws, Internal Revenue
(Code) and the Revised Penal Code.”
The petitioner contended that the search warrants are
null and void as their issuance violated the Constitution
and the Rules of Court for being general warrants.
The documents, papers, and things seized under the
alleged authority of the warrants in question may be
split into two (2) major groups, namely: (a) those found
and seized in the offices of the aforementioned
corporations, and (b) those found and seized in the
residences of petitioners herein.
Issue: Whether petitioners can validly assail the search
warrant against the corporation.
Held: No.
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As regards the first group, we hold that petitioners
herein have no cause of action to assail the legality of
the contested warrants and of the seizures made in
pursuance thereof, for the simple reason that said
corporations have their respective personalities,
separate and distinct from the personality of herein
petitioners, regardless of the amount of shares of stock
or of the interest of each of them in said corporations,
and whatever the offices they hold therein may be.
Indeed, it is well settled that the legality of a seizure can
be contested only by the party whose rights have been
impaired thereby, and that the objection to an unlawful
search and seizure is purely personal and cannot be
availed of by third parties. Consequently, petitioners
herein may not validly object to the use in evidence
against them of the documents, papers and things
seized from the offices and premises of the
corporations adverted to above, since the right to
object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their
individual capacity.
PHILIPPINE NATIONAL BANK VS
COURT OF APPEALS ET AL
Facts: Rita Tapnio owes PNB an amount of P2,000.00.
The amount is secured by her sugar crops about to be
harvested including her export quota allocation worth
1,000 piculs. The said export quota was later dealt by
Tapnio to a certain Jacobo Tuazon at P2.50 per picul or
a total of P2,500. Since the subject of the deal is
mortgaged with PNB, the latter has to approve it. The
branch manager of PNB recommended that the price
should be at P2.80 per picul which was the prevailing
minimum amount allowable. Tapnio and Tuazon agreed
to the said amount. And so the bank manager
recommended the agreement to the vice president of
PNB. The vice president in turn recommended it to the
board of directors of PNB.
However, the Board of Directors wanted to raise the
price to P3.00 per picul. This Tuazon does not want
hence he backed out from the agreement. This resulted
to Tapnio not being able to realize profit and at the
same time rendered her unable to pay her P2,000.00
crop loan which would have been covered by her
agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and
Tapnio filed a third party complaint against PNB where
she alleged that her failure to pay her debts was
because of PNB’s negligence and unreasonableness.
ISSUE: Whether or not Tapnio is correct.
HELD: Yes. In this type of transaction, time is of the
essence considering that Tapnio’s sugar quota for said
year needs to be utilized ASAP otherwise her allotment
may be assigned to someone else, and if she can’t use
it, she won’t be able to export her crops. It is
unreasonable for PNB’s board of directors to disallow
the agreement between Tapnio and Tuazon because of
the mere difference of 0.20 in the agreed price rate.
What makes it more unreasonable is the fact that the
P2.80 was recommended both by the bank manager
and PNB’s VP yet it was disapproved by the board.
Further, the P2.80 per picul rate is the minimum
allowable rate pursuant to prevailing market trends that
time. This unreasonable stand reflects PNB’s lack of the
reasonable degree of care and vigilance in attending to
the matter. PNB is therefore negligent.
A corporation is civilly liable in the same manner as
natural persons for torts, because “generally speaking,
the rules governing the liability of a principal or master
for a tort committed by an agent or servant are the
same whether the principal or master be a natural
person or a corporation, and whether the servant or
agent be a natural or artificial person. All of the
authorities agree that a principal or master is liable for
every tort which it expressly directs or authorizes, and
this is just as true of a corporation as of a natural
person, a corporation is liable, therefore, whenever a
tortious act is committed by an officer or agent under
express direction or authority from the stockholders or
members acting as a body, or, generally, from the
directors as the governing body.”
V. PROMOTERS CONTRACTS PRIOR TO INCOPORATION
A. LIABILITY OF CORPORATION FOR PROMOTER’S
CONTRACTS
D.A MCARTHUR VS TIMES PRINTING CO
SUPREME COURT OF MINNESOTA
FACTS:
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 McArthur filed a petition against the Times Printing
Co alleging that:
 Oct 1,1889, Times Printing Co. engaged his
services as advertising solicitor for one year.
 September 1890, the respondent discharged his
services in violation of their contract.
 Times Printing Co’s defenses:
 The plaintiff’s employment was not for any
stated time, but only from week to week.
 That the plaintiff was discharged for good cause
 During trial, the following facts were disclosed:
 In Sep 1889, one C.A Nimocks was a promoter
engaged in procuring the organization of the
defendant company to publish a newspaper.
 That as a promoter, Nimocks made a contract
with McArthur in behalf of the company for his
service as an advertising solicitor for one year
from and after October 1(date at which the
corporation is expected to be organized)—Corp
however was not organized until October 16
 That after the organization of the corporation,
he continued his employment until he was
discharged the following April
 That the Times’ board of directors never took
any formal action with reference to the contract
made in its behalf by Nimocks; but that all the
directors and stockholders were informed of
such contract
ISSUE: WON the contract entered into by a
promoter would bind the corporation to which such
service was rendered
RULING: Petitioner won!
 The right of the corporate agents to adopt an
agreement originally made by a promoter depends
upon the purposes of the corporation and the
nature of the transaction
 Of course, the agreement must be one which the
corporation itself could make, and one which the
usual agents of the company have express or
implied authority to make. That the contract in this
case was of that kind is very clear; and the acts and
acquiescence of the corporate officers, after the
organization of the company, fully justified the jury
in finding that it had adopted it as its own.
 The defendant, however, claims that the contract
was void under the statute of frauds, because, "by
its terms, not to be performed within one year from
the making thereof," which counsel assumes to be
September 12th, -- the date of the agreement
between plaintiff and the promoter—such belief
proceeds upon the erroneous theory that the act of
the corporation, in such cases, is a ratification,
which relates back to the date of the contract with
the promoter, under the familiar maxim that "a
subsequent ratification has a retroactive effect, and
is equivalent to a prior command."
 But the liability of the corporation, under such
circumstances, does not rest upon any principle of
the law of agency, but upon the immediate and
voluntary act of the company. Although the acts of
a corporation with reference to the contracts
made by promoters in its behalf before its
organization are frequently loosely termed
"ratification," yet a "ratification," properly so
called, implies an existing person, on whose behalf
the contract might have been made at the time.
There cannot, in law, be a ratification of a contract
which could not have been made binding on the
ratifier at the time it was made, because the ratifier
was not then in existence.
What is called "adoption," in such cases, is, in legal
effect, the making of a contract of the date of the
adoption, and not as of some former date. The contract
in this case was, therefore, not within the statute of
frauds. The trial court fairly submitted to the jury all the
issues of fact in this case, accompanied by instructions
as to the law which were exactly in the line of the views
we have expressed; and the evidence justified the
verdict.
CAGAYAN FISHING DEVELOPMENT CO., INC. vs.
TEODORO SANDIKO
FACTS:
Manuel Tabora is the registered owner of four
parcels of land. The four parcels were mortgaged for
loans and indebtedness. However, Tabora executed a
public document (Exhibit A) by virtue of which the four
parcels of land owned by him was sold to the plaintiff
company, which at that time is still under the process of
incorporation.
A year later, the BOD of said company adopted
a resolution authorizing its president to sell the four
parcels of lands in question to Teodoro Sandiko.
Exhibits B, C and D were thereafter made and executed.
Exhibit B is a deed of sale where the plaintiff sold, ceded
and transferred to the defendant the four parcels of
land. Exhibit C is a promissory note drawn by the
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defendant in favor of the plaintiff. Exhibit D is a deed of
mortgage executed where the four parcels of land were
given a security for the payment of the promissory
note. Defendant failed to pay thus plaintiff filed a
collection of sum of money in the Court of First Instance
in Manila. The latter rendered judgment absolving the
defendant. Plaintiff has appealed to this court and
makes an assignment of various errors.
ISSUE:
WON the sale made by the plaintiff corporation
is valid.
HELD:
The contract here was entered into not between
Manuel Tabora and a non-existent corporation but
between the Manuel Tabora as owner of the four
parcels of lands on the one hand and the same Manuel
Tabora, his wife and others, as mere promoters of a
corporations on the other hand. For reasons that are
self-evident, these promoters could not have acted as
agent for a projected corporation since that which no
legal existence could have no agent. This is not saying
that under no circumstances may the acts of promoters
of a corporation be ratified by the corporation if and
when subsequently organized, however, under the
peculiar facts and circumstances of the present the
court declined to extend the doctrine of ratification
which would result in the commission of injustice or
fraud to the candid and unwary. A corporation, until
organized, has no life and therefore no faculties.
Cagayan Fishing Dev’t Corp could not and did not
acquire the four parcels of land sold by Tabora, it also
follows that it did not possess any resultant right to
dispose of them by sale to the defendant, Teodoro
Sandiko. The corporation had no juridical personality to
enter into a contract.
Corporations are creatures of the law, and can
only come into existence in the manner prescribed by
law. It should have a full and complete organization and
existence as an entity before it can enter into any kind
of a contract or transact any business.
B. CORPORATE RIGHTS UNDER PROMOTER’S
CONTRACTS
BUILDERS DUNTILE VS. DUNN MANUFACTURING
DOCTRINE: A corporation has the power to adopt and
make its own, contracts made by promoters before
incorporation.
FACTS: W.E. Dunn Manufacturing Company
manufactures machinery for making duntile, which is a
hollow building tile. B.H. Samuels (Promoter), of
Paducah, received some of its advertising showing that
its duntiles were fireproof, moisture proof, and sold at a
cost below that of other construction material of equal
qualities.
After some correspondence W.E. Dunn sent its agent,
Mr. Gaston, to Paducah, in April, 1925. Samuels told
Gaston that he was organizing a company to
manufacture these duntiles. He and Gaston went to see
one or two of the other promoters of the proposed
corporation, and also went to see a banker from whom
they expected to get some money.
Samuels preferred to organize the corporation and then
make the contract for the machinery. Gaston wished
him to order the machinery then, and go ahead with the
corporation afterwards.
On September 8, 1982, the National Federation of Labor
Union (NAFLU) filed a request for conciliation before
the Bureau of Labor Relations.
After talking it over with the other promoters who were
in the city, Samuels signed a contract, in the usual form,
ordering the machinery on April 23. The contract
contained this provision: "W E. Dunn. Manufacturing
Company agrees to furnish, free of charge, an
experienced service man for a period of five days to
insure proper installation and instruct your force." The
order, signed by Samuels, was accepted by the
company. The machinery was shipped and reached
Paducah on June 6.
The “experienced man” was Mr. Aaron. He was there to
set up the machinery and instruct the workers on how
to use the machines. The Builders’ Duntile Company
was incorporated thereafter. After Aaron left it turned
out that the blocks so made were inferior in quality and
practically valueless for building purposes.
The Builders' Duntile Company wrote to the
manufacturer. Some correspondence followed, and
some two months later the manufacturer sent another
man to the plant, Mr. Terrell, who found that the
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machinery had not been put up right by Aaron, and that
Aaron had given the wrong formula as to the mixing of
the ingredients.
After Terrell had properly set up the machinery and
properly mixed the material, the machinery produced
good results. This action was brought by the Builders'
Duntile Company against the W. E. Dunn Manufacturing
Company to recover on the written contract made on
April 23 by Samuels. The court peremptorily ruled in
favor of the defendant. The plaintiff appeals.
ISSUE: WON the corporation may sue upon a contract
made on its behalf by one of the promoters before
incorporation? YES.
HELD: The Supreme Court ruled in favor of Builders
Duntile Co.
In this case it was clearly understood between Samuels
and the other promoters and Gaston, the agent of the
manufacturer, that the contract was made on behalf of
the corporation which they proposed to form, and
when the corporation was formed the incorporators
took over the whole thing, and ratified all that had been
done on its behalf.
To deny the corporation the right to sue for damages
for the breach of contract and the loss it sustained by
reason of the first agent's negligence and improper acts
would be to deny it all remedy for the breach of the
contract, for Samuels did not make the contract for
himself, and he personally did not sustain the damages.
The corporation only sustained the damages resulting
from the breach of the contract. The contract, though
made in the name of Samuels was, as all the parties
knew, made in his name for the benefit of the
corporation to be organized. He was one of the
promoters, and had no intention of buying the
machinery for himself. The other promoters, knowing
all the facts, recognized this, and so the corporation,
when organized, at once took charge of the plant which
had been bought for it, and gave Samuels stock to the
amount of his expenditures.
WHO WON? BUILDERS DUNTILE
RIZAL LIGHT & ICE vs. THE MUNICIPALITY OF MORONG,
RIZAL and THE PUBLIC SERVICE COMMISSION
September 28, 1968 / Zaldivar, J.
Facts: (Note: this decision is a consolidation of 2 cases)
 Rizal Light & Ice Co. was granted by the
Commission a certificate of public convenience
and necessity for the installation, operation and
maintenance of an electric light, heat and
power service in the municipality of Morong,
Rizal
 Commission required the petitioner to appear
before it to show cause why it should not be
penalized for violation of the conditions of its
certificate of public convenience and the
regulations of the Commission, and for failure
to comply with the directives to raise its service
voltage and maintain them within the limits
prescribed in the Revised Order No. 1 of the
Commission, and to acquire and install a
kilowattmeter to indicate the load in kilowatts
at any particular time of the generating unit
 The motion was set for hearing and Mr. Pedro
S. Talavera, Chief, Industrial Division of the
Commission, was authorized to conduct the
hearing for the reception of the evidence of the
parties
 For failure of the petitioner to appear at the
hearing, Commission ordered the cancellation
and revocation of petitioner's certificate of
public convenience and necessity and the
forfeiture of its franchise
 Petitioner moved for reconsideration of said
order on the ground that its manager was not
aware of said hearing
 Finding that the failure of the petitioner to
appear at the hearing— the sole basis of the
revocation of petitioner's certificate — was
really due to the illness of its manager, the
Commission set aside its order of revocation
 municipality formally asked the Commission to
revoke petitioner's certificate of public
convenience and to forfeit its franchise on the
ground, among other things, that it failed to
comply with the conditions of said certificate
and franchise
 inspections had been made of petitioner's
electric plant and installations
 When the case was called for hearing,
petitioner failed to appear again so municipality
was then allowed to present its documentary
evidence, and thereafter the case was
submitted for decision
7
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 on the basis of the inspection reports,
Commission found that the petitioner had failed
to comply with the directives and had violated
the conditions of its certificate of public
convenience as well as the rules and regulations
of the Commission ordered the cancellation
and revocation of petitioner's certificate of
public convenience and the forfeiture of its
franchise
 petitioner moved for reconsideration of the
decision but before said motion for
reconsideration was filed, Morong Electric filed
with the Commission an application for a
certificate of public convenience and necessity
for said service
 Petitioner opposed the application of Morong
Electric
Issues: (only those relevant to our topic)
(1) WON the Commission acted without or in excess of
its jurisdiction when it delegated the hearing of the case
and the reception of evidence to Mr. Pedro S. Talavera
who is not allowed by law to hear the same
-petitioner contends that while Mr. Pedro S.
Talavera, who conducted the hearings of the
case below, is a division chief, he is not a
lawyer. As such, under Section 32 of
Commonwealth Act No. 146, as amended, the
Commission should not have delegated to him
the authority to conduct the hearings for the
reception of evidence of the parties
(2) WON the cancellation of petitioner's certificate of
public convenience was unwarranted because no
sufficient evidence was adduced against the petitioner
and that petitioner was not able to present evidence in
its defense
-petitioner contends that the evidence
consisting of inspection reports upon which the
Commission based its decision is insufficient
and untrustworthy in that (1) the authors of
said reports had not been put to test by way of
cross-examination; (2) the reports constitute
only one side of the picture as petitioner was
not able to present evidence in its defense; (3)
judicial notice was not taken of the testimony of
Mr. Harry B. Bernardino, former mayor of
respondent municipality, to the effect that the
petitioner had improved its service before its
electric power plant was burned which
testimony contradicts the inspection reports;
and (4) the Commission acted both as
prosecutor and judge — passing judgment over
the very same evidence presented by it as
prosecutor — a situation "not conducive to the
arrival at just and equitable decisions"
Held:
1. YES BUT...
Indeed, Mr. Talavera is not a lawyer. Under the
second paragraph of Section 32 of Commonwealth
Act No. 146, as amended, the Commission can only
authorize a division chief to hear and investigate a
case filed before it if he is a lawyer. However, the
petitioner is raising this question for the first time in
this appeal. The record discloses that petitioner
never made any objection to the authority of Mr.
Talavera to hear the case and to receive the
evidence of the parties. On the contrary, petitioner
had appeared and submitted evidence at the
hearings conducted by Mr. Talavera, particularly the
hearings relative to the motion for reconsideration
of the order cancelling and revoking its certificate.
Through counsel, petitioner had entered into
agreements with Mr. Talavera, as hearing officer,
and the counsel for respondent municipality,
regarding procedure in order to abbreviate the
proceedings. It is only after the decision in the case
turned out to be adverse to it that petitioner
questioned the proceedings held before Mr.
Talavera.
Objection to the delegation of authority to hear a
case filed before the Commission and to receive
the evidence in connection therewith is a
procedural, not a jurisdictional point, and is
waived by failure to interpose timely the objection
and the case had been decided by the Commission.
Since petitioner has never raised any objection to
the authority of Mr. Talavera before the
Commission, it should be deemed to have waived
such procedural defect, and consonant with the
precedents on the matter, petitioner's claim that
the Commission acted without or in excess of
jurisdiction in so authorizing Mr. Talavera should be
dismissed.
2. NO. Settled is the rule that in reviewing the decision
of the Public Service Commission this Court is not
required to examine the proof de novo and determine
for itself whether or not the preponderance of evidence
really justifies the decision. The only function of this
Court is to determine whether or not there is evidence
8
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before the Commission upon which its decision might
reasonably be based. This Court will not substitute its
discretion for that of the Commission on questions of
fact and will not interfere in the latter's decision unless
it clearly appears that there is no evidence to support it.
Inasmuch as the only function of this Court in
reviewing the decision of the Commission is to
determine whether there is sufficient evidence before
the Commission upon which its decision can
reasonably be based, as it is not required to examine
the proof de novo, the evidence that should be made
the basis of this Court's determination should be only
those presented in this case before the Commission.
The Commission based its decision on the inspection
reports submitted by its engineers who conducted the
inspection of petitioner's electric service upon orders of
the Commission. Said inspection reports specify in detail
the deficiencies incurred, and violations committed, by
the petitioner resulting in the inadequacy of its service.
SC considers that said reports are sufficient to serve
reasonably as bases of the decision in question. It
should be emphasized, in this connection that said
reports, are not mere documentary proofs presented
for the consideration of the Commission, but are the
results of the Commission's own observations and
investigations which it can rightfully take into
consideration, particularly in this case where the
petitioner had not presented any evidence in its
defense, and speaking of petitioner's failure to present
evidence, as well as its failure to cross-examine the
authors of the inspection reports, petitioner should not
complain because it had waived not only its right to
cross-examine but also its right to present evidence.
C. PERSONAL LIABILITY OF PROMOTER ON PRE-
INCORPORATION CONTRACTS
D. FIDUCIARY RELATIONSHIP BETWEEN CORPORATION
AND PROMOTER
VI. COROPORATE POWERS
(READ CAMPOS PP. 282-339)
A. COPORATE POWERS
1. GENERAL SCOPE CC PH
Sec. 36. Corporate powers and capacity. - Every
corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the
period of time stated in the articles of incorporation
and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals,
or public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell
stocks to subscribers and to sell stocks to subscribers
and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including
securities and bonds of other corporations, as the
transaction of the lawful business of the corporation
may reasonably and necessarily require, subject to
the limitations prescribed by law and the
Constitution;
8. To enter into merger or consolidation with
other corporations as provided in this Code;
9. To make reasonable donations, including
those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation, domestic or
foreign, shall give donations in aid of any political
party or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees, officers
and employees; and
11. To exercise such other powers as may be
essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation.
E.B. VILLAROSA & PARTNERS CO., LTD. I. BENITO,
312 SCRA 65 ,1999
FACTS:
E.B. Villarosa & Partners is a limited partnership
with principal office address at 102 Juan Luna St.,
Davao City and with branch offices at Parañaque and
Cagayan de Oro City (CDO). Villarosa and Imperial
Development (ID) executed an Agreement wherein
Villarosa agreed to develop certain parcels of land in
CDO belonging to ID into a housing subdivision. ID,
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filed a Complaint for Breach of Contract and
Damages against Villarosa before the RTC allegedly
for failure of the latter to comply with its contractual
obligation.
Summons, together with the complaint, were served
upon Villarosa, through its Branch Manager Wendell
Sabulbero at the address at CDO but the Sheriff’s
Return of Service stated that the summons was duly
served "E.B. Villarosa & Partner thru its Branch
Manager at their new office Villa Gonzalo, CDO, and
evidenced by the signature on the face of the
original copy of the summons." Villarosa prayed for
the dismissal of the complaint on the ground of
improper service of summons and for lack of
jurisdiction over the person of the defendant.
Villarosa contends that the RTC did not acquire
jurisdiction over its person since the summons was
improperly served upon its employee in its branch
office at CDO who is not one of those persons named
in Sec. 11, Rule 14 upon whom service of summons
may be made. ID filed a Motion to Declare Villarosa
in Default alleging that Villarosa has failed to file an
Answer despite its receipt allegedly on May 5, 1998
of the summons and the complaint, as shown in the
Sheriff's Return.
Issue: Won an agent of a corporation can receive
summons in behalf of their corporation?
HELD: The court agrees with the contention of
Villarosa. Earlier cases have uphold service of
summons upon a construction project manager; a
corporation's assistant manager; ordinary clerk of a
corporation; private secretary of corporate
executives; retained counsel; officials who had
charge or control of the operations of the
corporation, like the assistant general manager; or
the corporation's Chief Finance and Administrative
Office. In these cases, these persons were
considered as "agent" within the contemplation of
the old rule.”
“Notably, under the new Rules, service of summons
upon an AGENT of the corporation is NO LONGER
authorized.”
“The designation of persons or officers who are
authorized to accept summons for a domestic
corporation or partnership is now limited and more
clearly specified in Section11, Rule 14. The rule now
states "general manager" instead of only
"manager";"corporate secretary" instead of
"secretary"; and "treasurer" instead of "cashier." The
phrase “agent, or any of its directors" is
conspicuously deleted in the new rule.”
“A strict compliance with the mode of service is
necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made
must be one who is named in the statute; otherwise
the service is insufficient. . . The liberal construction
rule cannot be invoked and utilized as a substitute
for the plain legal requirements as to the manner in
which summons should be served on a domestic
corporation. .”
DBP V. CA
(not sure if this is the right case)
FACTS: Spouses Piñedas are registered owners of a
parcel of land in Capiz, which they mortgaged to DBP
to secure the loan (P20,000) they obtained from the
latter. Piñedas eventually defaulted, prompting DBP
to extra-judicially foreclose and take possession of
such property. The Ministry of Justice, then, opined
through its Opinion No. 92 (’78) that lands covered
by P.D. No. 27, to which the subject property was
included, may not be the object of foreclosure
proceedings. The Piñedas, then, sought to redeem
such property (with P10,000 as downpayment) but
was denied as the land was allegedly tenanted. They
then sought the cancellation of the title and specific
performance, stating that DBP acted in bad faith
when it took possession of the property andcaused
the consolidation of its title in spite of the fact that
the 5-year redemption period expressly stated in the
Sheriff’s Certificate of Sale had not yet lapsed and
that their offer to redeem was within the
redemption period.
ISSUE: Whether or not DBP acted in bad faith when it
took possession of the property
RULING: NO. DBP’s act of consolidating its title and
taking possession of the property after the expiration
of the redemption period was in accordance with
Sec. 6 of Act No. 3135, which states that if no
redemption of a foreclosed property is made within
one year, the purchaser (DBP) is entitled as a matter
of right to consolidate and to possess the property.
In addition to this, it was in consonance with Sec. 4
of the mortgage contract between DBP and the
Piñedas where they agreed the appointment of DBP
as receiver to take charge and to hold possession of
the mortgaged property in case of foreclosure. In
10
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fact, without DBP’s act of consolidating its title, the
Piñedas would not be able to assert their right to
repurchase the property within 5 years, which would
begin to run after the expiration of the one-year
period. Thus, its acts cannot be tainted with bad faith
nor did it impair Piñedas’ right to repurchase.
It may also be argued that P.D. No. 27 was already in
effect when DBP foreclosed the property. However,
the legal propriety of the foreclosure of the land was
questioned only after Opinion No. 92 (’78) was
issued, which happened almost 2 months after DBP
consolidated its title to the property. By law and
jurisprudence, a mistake upon a doubtful or difficult
question of law may properly be the basis of good
faith.
Art. 526 of NCC states that “a possessor in good faith
is one who is not aware that there exists in his title
or mode of acquisition any flaw, which invalidates
it.” Moreover, Art. 527 of NCC provides “good faith is
always presumed, and upon him who alleges bad
faith on the part of the possessor rests the burden of
proof.” Thus, it is incumbent on the Piñedas to prove
that DBP was aware of the flaw in its title (nullity of
the foreclosure), but this they failed to do.
SOCIAL SECURITY SYSTEM vs. COMMISSION ON AUDIT
G.R. No. 149240. July 11, 2002
FACTS:
 The Social Security Commission (SSC) in behalf of
SSS and the Concerned Emplyoees for Better SSS
(ACCESS) executed a collective negotiation
agreement (CAN) that provides P5,000 contract
signing bonus.
 Department of Budget and Management (DBM)
declared the CAN as illegal.
 The SSS Corporate Auditor disallowed fund
releases for the signing bonus since it was an
allowance in the form of additional compensation
prohibited by the Constitution.
 ACCESS appealed the disallowance but COA
affirmed the disallowance and ruled that the grant
of the signing bonus was improper because it has
no legal basis since Sec. 16 of RA 7658 (1989) had
repealed the authority of the SSC to fix the
compensation of its personnel.
 Hence the instant petition was filed in the name of
the Social Security System and not by ACCESS
through its legal staff.
 Petitioner SSS argues that a signing bonus may be
granted upon the conclusion of negotiations
leading to the execution of a CNA under Sec. 3, par.
(c), of RA 1161 as, which allows the SSC to fix the
compensation of its personnel.
 On the other hand, respondent COA asserts that
the authority of the SSC to fix the compensation of
its personnel has been repealed by Sections 12 and
16 of RA 6758 and is therefore no longer effective.
ISSUEs:
1. Whether or not ACESS has a power to file a case in
the name of SSS? NO!
2. Whether or not the charter of SSS authorizes SSC to
fix the compensation of its employees and officers? NO!
HELD: 1. There is no directive from the SSC that
authorized the suit and only the officer-in-charge in
behalf of petitioner executed the purported directive.
Clearly, this is irregular since under Sec. 4, par. 10, in
relation to par. 7 RA 1161 as amended by RA 8282 (The
Social Security Act of 1997, which was already effective
when the instant petition was filed), it is the SSC as a
collegiate body which has the power to approve,
confirm, pass upon or review the action of the SSS to
sue in court. Moreover, the appearance of the internal
legal staff of the SSS as counsel in the present
proceedings is similarly questionable because only DOJ
can act as counsel of SSS under both RA 1161 and RA
8282. It is well settled that the legality of the
representation of an unauthorized counsel may be
raised at any stage of the proceedings and that such
illicit representation produces no legal effect.
In the case at bar, there is no approval or
ratification of the SSC has been undertaken in the
manner prescribed by law and DOJ has not delegated
the authority to act as counsel, then this case must fail.
These procedural deficiencies are serious matters that
cannot be ignored since the SSS is in reality confessing
judgment to charge expenditure against the trust fund
under its custodianship. This reasoning is found in
Premium Marble Resources v. Court of Appeals:
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“no person, not even its officers, could validly
sue in behalf of a corporation in the absence of any
resolution from the governing body authorizing the
filing of such suit. Moreover, where the corporate
officers power as an agent of the corporation did not
derive from such resolution, it would
nonetheless be necessary to show a clear source
of authority from the charter, the by-laws or the
implied acts of the governing body.”
2. RA 6758 modified, if not repealed, Sec. 3,
par. (c), of RA 1161 as amended, at least insofar as it
concerned the authority of SSC to fix the compensation
of SSS employees and officers. RA 6758 intended to do
away with multiple allowances and other incentive
packages and the resulting differences in compensation
among government personnel, the statute clearly did
not revoke existing benefits being enjoyed by
incumbents of government positions at the time of the
passage of RA 6758 by virtue of Secs. 12 and 17 thereof.
This means that whatever salaries and other financial
and non-financial inducements that the SSC was minded
to fix for them, the compensation must comply with the
terms of RA 6758.
Unfortunately, the signing bonus in question did
not qualify under Secs. 12 and 17 of RA 6758. It was
non-existent as of 1 July 1989 as it accrued only in 1996
when the CNA was entered into by and between SSC
and ACCESS. The signing bonus therefore could not
have been included in the salutary provisions of the
statute nor would it be legal to disburse to the intended
recipients. The signing bonus is not truly reasonable
compensation. Agitation and propaganda which are so
commonly practiced in private sector labor-
management relations have no place in the bureaucracy
and that only a peaceful collective negotiation which is
concluded within a reasonable time must be the
standard for interaction in the public sector. This
desired conduct among civil servants should not come,
we must stress, with a price tag which is what the
signing bonus appears to be.
TAM WING TAK vs. HON. RAMON P. MAKASIAR (in his
Capacity as Presiding Judge of the Regional Trial Court
of Manila, Branch 35) and ZENON DE GUIA (in his
capacity as Chief State Prosecutor)
G.R. No. 122452. January 29, 2001
FACTS: On November 11, 1992, petitioner, in his
capacity as director of Concord-World Properties, Inc.,
(Concord for brevity), a domestic corporation, filed an
affidavit-complaint with the Quezon City Prosecutor's
Office, charging Vic Ang Siong with violation of B.P. Blg.
22 alleging that a check for the amount of
P83,550,000.00, issued by Vic Ang Siong in favor of
Concord, was dishonored when presented for
encashment.
Vic Ang Siong sought the dismissal of the case
on two grounds: First, that petitioner had no authority
to file the case on behalf of Concord, the payee of the
dishonored check, since the firm's board of directors
had not empowered him to act on its behalf. Second, he
and Concord had already agreed to amicably settle the
issue after he made a partial payment of
P19,000,000.00 on the dishonored check.
The City Prosecutor dismissed the case. Petitioner
moved for reconsideration but the City Prosecutor
denied such. On November 8, 1994, petitioner appealed
the dismissal of his complaint and the Chief State
Prosecutor dismissed the appeal for having been filed
out of time.
ISSUES: Whether or not petitioner is the proper party to
institute the case.
RULING: NO. In general, mandamus may be resorted to
only where one's right is founded clearly in law and not
when it is doubtful. The exception is to be found in
criminal cases where mandamus is available to compel
the performance by the public prosecutor of an
ostensibly discretionary function, where by reason of
grave abuse of discretion on his part, he willfully refuses
to perform a duty mandated by law. Thus, mandamus
may issue to compel a prosecutor to file information
when he refused to do so in spite of the prima facie
evidence of guilt.
First, with respect to the agreement between
Concord and Victor Ang Siong to amicably settle their
difference, we find this resort to an alternative dispute
settlement mechanism as not contrary to law, public
policy, or public order. Efforts of parties to solve their
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disputes outside of the courts are looked on with favor,
in view of the clogged dockets of the judiciary.
Second, it is not disputed in the instant case
that Concord, a domestic corporation, was the payee of
the bum check, not petitioner. Therefore, it is Concord,
as payee of the bounced check, which is the injured
party. Since petitioner was neither a payee nor a holder
of the bad check, he had neither the personality to sue
nor a cause of action against Vic Ang Siong.
Petitioner failed to show any proof that he was
authorized or deputized or granted specific powers by
Concord's board of director to sue Victor Ang Siong for
and on behalf of the firm. Petitioner as a minority
stockholder and member of the board of directors had
no such power or authority to sue on Concord's behalf.
Nor can we uphold his act as a derivative suit. For a
derivative suit to prosper, it is required that the
minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing
on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated
who may wish to join him in the suit.
2. EXPRESS, IMPLIED, INCIDENTAL (read Aquino
pp336-340)
3. ULTRA VIRES ACTS
CC PH
Sec. 45. Ultra vires acts of corporations. - No
corporation under this Code shall possess or exercise
any corporate powers except those conferred by this
Code or by its articles of incorporation and except
such as are necessary or incidental to the exercise of
the powers so conferred. (n)
REPUBLIC V. ACOJE MINING CO.
Facts: Acoje Mining wrote the Director of Posts
requesting the opening of a post, telegraph and money
order offices at its mining camp at Zambales for the use
of its employees and their families living in said camp.
The Director of Posts obliged on the condition that the
company assume direct responsibility for whatever
pecuniary loss may be suffered by the Bureau of Posts
by reason of any act of dishonesty, carelessness or
negligence on the part of the employee of the company
who is assigned to take charge of the post office.
Board of Directors of Acoje passed a resolution stating
that:
“That the requirement of the Bureau of Posts that the
Company should accept full responsibility for all cash
received by the Postmaster be complied with, and that
a copy of this resolution be forwarded to the Bureau of
Posts."
Post Office branch was opened but after five years, the
postmaster, an employee of Acoje, went on a 3-day
leave and never returned. Acoje informed the Manila
Post Office of the incident and upon making an audit, it
was found that 13k was missing. Post Office demanded
payment from Acoje Mining and filed a suit with the CFI
Manila
Acoje’s Defenses: Board’s act in assigning a postmaster
was ultra vires; and the company’s liability was merely
that of a guarantor
CFI ruled in favor of Post Office but awarded only 9k as
supported by evidence
Issue: (1) w/n the acts of Acoje’s Board of Directors was
ultra vires; (2) w/n its liability is merely that of a
guarantor
Held:
1. No, the act covers a subject which concerns the
benefit, convenience, and welfare of the company’s
employees and their families. An ultra vires act if one
committed outside the object for which a corporation is
created as defined by the law of its organization and
therefore beyond the powers conferred upon it by law.
However, there are certain corporate acts that may be
performed outside of the scope of the powers expressly
conferred if they are necessary to promote the interests
or welfare of the corporation. Establishment of the local
post office is a reasonable and proper adjunct to the
conduct of the business.
Moreover, an ultra vires act is merely voidable, in
contrast to illegal acts which are void. It may be
enforced by performance, ratification or estoppel. Here
it is fair that the resolution be upheld at least on the
ground of estoppel since the company at least
benefited from the transaction.
2. No, the terms employed in the resolution are clear
and sweeping. Acoje assumed “full responsibility for all
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cash received by the Postmaster”. Its liability is that of a
principal.
TERESA ELECTRIC AND POWER CO., INC. vs. PUBLIC
SERVICE COMMISSION and FILIPINAS CEMENT
CORPORATION
G.R. No. L-21804. September 25, 1967
FACTS: The petitioner Teresa Electric Light and Power
Co., Inc. is a domestic corporation operating an electric
plant in Teresa, Rizal, under a subsisting certificate of
public convenience and necessity issued on June 2,
1960, while the respondent Filipinas is likewise a
domestic corporation engaged in the manufacture and
sale of cement.
On May 24, 1962, Filipinas filed an application
with the Public Service Commission for a certificate of
public convenience to install, maintain and operate an
electric plant in sitio Kaysapon of barrio Pamanaan,
municipality of Teresa, Rizal, for the purpose of
supplying electric power and light to its cement factory
and its employees living within its compound.
Petitioner opposed alleging that it is the duly
authorized operator of an electric light, heat and power
service in Teresa, Rizal and that Filipinas is not
authorized by its articles of incorporation to operate an
electric plant; that the Municipal Council of Teresa had
not authorized it either to operate the proposed service
since Filipinas' principal business does not come within
the jurisdiction of the respondent Commission.
ISSUES: Whether or not under its articles of
incorporation Filipinas is authorized to operate and
maintain an electric plant.
RULING: YES. The Articles of Incorporation of Filipinas
(paragraph 7) provide for authority to secure from any
governmental, state, municipality, or provincial, city or
other authority, and to utilize and dispose of in any
lawful manner, rights, powers, privileges, franchises and
concessions — obviously necessary or at least related to
the operation of its cement factory. Moreover, said
Articles of Incorporation also provide that the
corporation may generally perform any and all acts
connected with the business of manufacturing Portland
cement or arising therefrom or incidental thereto.
It cannot be denied that the operation of an
electric light, heat and power plant is necessarily
connected with the business of manufacturing cement.
Moreover, it has been established in this case that
petitioner was in no condition to supply the power
needs of Filipinas, because its load capacity was only
200 kilowatts while Filipinas was in need of 6,000
Kilowatts power to operate its cement factory.
NATIONAL POWER CORP. VS. VERA
G.R. NO. 83558; FEBRUARY 27, 1989
FACTS: Sea Lion International Port Services, private
respondent, filed a complaint for prohibition and
mandamus against petitioner NPC alleging that it had
acted in bad faith in not renewing its contract for
stevedoring services for its plant and in taking over its
stevedoring services. Respondent judge issued a
restraining order against NPC enjoining the latter from
undertaking stevedoring services at its pier.
Consequently, NPC filed an "Urgent Motion" to dissolve
the restraining order, asserting that respondent judge
had no jurisdiction to issue the order and private
respondent, whose contract with NPC had expired prior
to the commencement of the suit, failed to establish a
cause of action for a writ of preliminary injunction. The
respondent judge denied the NPC’s motion and issued a
TRO after finding that NPC was not empowered by its
Charter to engage in stevedoring and arrastre services.
ISSUE: WON the undertaking of stevedoring services is
empowered by the NPC’s charter powers.
HELD: YES. To carry out the national policy of total
electrification of the country, the NPC was created and
empowered not only to construct, operate and
maintain power plants, reservoirs, transmission lines,
and other works, but also to exercise such powers and
do such things as may be reasonably necessary to carry
out the business and purposes for which it was
organized, or which, from time to time, may be
declared by the Board to be necessary, useful,
incidental or auxiliary to accomplish said purpose.
In determining whether or not an NPC act falls
within the purview of the above provision, the Court
must decide whether or not a logical and necessary
relation exists between the act questioned and the
corporate purpose expressed in the NPC charter. For if
that act is one which is lawful in itself and not otherwise
14
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prohibited, and is done for the purpose of serving
corporate ends, and reasonably contributes to the
promotion of those ends in a substantial and not in a
remote and fanciful sense, it may be fairly considered
within the corporation's charter powers.
IRINEO G. CARLOS vs. MINDORO SUGAR CO., ET AL.
G.R. No. L-36207. October 26, 1932
FACTS: The Mindoro Sugar Company is a corporation
constituted in accordance with the laws of the country
and registered on July 30, 1917. According to its articles
of incorporation, one of its principal purposes was to
acquire and exercise the franchise granted by Act No.
2720 to George H. Fairchild, to substitute the organized
corporation, the Mindoro Company, and to acquire all
the rights and obligations of the latter and of Horace
Havemeyer and Charles J. Welch in the so-called San
Jose Estate in the Province of Mindoro.
The Philippine Trust Company is another
domestic corporation, registered on October 21, 1917.
In its articles of incorporation, some of its purposes are
expressed thus: "To acquire by purchase, subscription,
or otherwise, and to invest in, hold, sell, or otherwise
dispose of stocks, bonds, mortgages, and other
securities, or any interest in either, or any obligations or
evidences of indebtedness, of any other corporation or
corporations, domestic or foreign.
In pursuance of this resolution, the Mindoro
Sugar Company executed in favor of the Philippine Trust
Company the deed of trust transferring all of its
property to it in consideration of the bonds it had issued
to the value of P3,000,000.
The Philippine Trust Company sold thirteen
bonds, Nos. 1219 to 1231, to Ramon Diaz for P27,300,
at a net profit of P100 per bond. The four bonds Nos.
1219, 1220, 1221, and 1222, here in litigation, are
included in the thirteen sold to Diaz. The Philippine
Trust Company paid the appellant, upon presentation of
the coupons, the stipulated interest from the date of
their maturity until the 1st of July, 1928, when it
stopped payments; and thenceforth it alleged that it did
not deem itself bound to pay such interest or to redeem
the obligation because the guarantee given for the
bonds was illegal and void.
ISSUE: Whether or not Philippine Trust Company
bound itself legally and acted within its corporate
powers in guaranteeing the four bonds in question.
RULING: YES. The Philippine Trust Company has full
powers to acquire personal property such as the bonds
in question. Being authorized to acquire the bonds, it
was given implied power to guarantee them in order to
place them upon the market under better, more
advantageous conditions, and thereby secure the profit
derived from their sale. It is not, however, ultra vires for
a corporation to enter into contracts of guaranty or
suretyship where it does so in the legitimate
furtherance of its purposes and business. And it is well
settled that where a corporation acquires commercial
paper or bonds in the legitimate transaction of its
business it may sell them, and in furtherance of such a
sale it may, in order to make them the more readily
marketable, indorse or guarantee their payment.
Guaranties of payment of bonds taken by a loan
and trust company in the ordinary course of its
business, made in connection with their sale, are not
ultra vires, and are binding.
THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on
relation of the Attorney-General) vs. EL HOGAR
FILIPINO
G.R. No. L-26649 July 13, 1927
FACTS: This case has 17 causes of action proceeded by
the Government of the Philippines through Quo
Warranto alleging that El Hogar Filipino, a corporation
organized as a mutual building and loan association
under the provisions of the Corporation Law, has
violated or went beyond its stated primary purposes for
mutual building and loan associations. Under
Corporation Law Section 171 to 190, inclusive, of this
Act are devoted to the subject of building and loan
associations, defining their objects making various
provisions governing their organization and
administration, and providing for the supervision to be
exercised over them.. The respondent, El Hogar Filipino,
was apparently the first corporation organized in the
Philippine Islands under the provisions cited, and the
association has been favored with extraordinary
success. The articles of incorporation bear the date of
December 28, 1910, at which time capital stock in the
association had been subscribed to the amount of
P150,000 of which the sum of P10,620 had been paid in.
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Under the law as it then stood, the capital of the
Association was not permitted to exceed P3,000,000,
but by Act No. 2092, passed December 23, 1911, the
statute was so amended as to permit the capitalization
of building and loan associations to the amount of ten
millions. Soon thereafter the association took
advantage of this enactment by amending its articles so
as to provide that the capital should be in an amount
not exceeding the then lawful limit. From the time of its
first organization the number of shareholders has
constantly increased, with the result that on December
31, 1925, the association had 5,826 shareholders
holding 125,750 shares, with a total paid-up value of
P8,703,602.25. During the period of its existence prior
to the date last above-mentioned the association paid
to withdrawing stockholders the amount of
P7,618,257,.72; and in the same period it distributed in
the form of dividends among its stockholders the sum
of P7,621,565.81.
As one of the causes of action, the respondent
is charged with having a provision in its by-laws stating
that “The board of directors of the association, by the
vote of an absolute majority of its members, is
empowered to cancel shares and to return to the owner
thereof the balance resulting from the liquidation
thereof whenever, by reason of their conduct, or for
any other motive, the continuation as members of the
owners of such shares is not desirable”.
ISSUE: Whether or not the provision of the by-laws
valid.
RULING: YES. The by-law is of course a patent nullity,
since it is in direct conflict with the latter part of section
187 of the Corporation Law, which expressly declares
that the board of directors shall not have the power to
force the surrender and withdrawal of unmatured stock
except in case of liquidation of the corporation or of
forfeiture of the stock for delinquency. It is agreed that
this provision of the by-laws has never been enforced,
and in fact no attempt has ever been made by the
board of directors to make use of the power therein
conferred. It appears, however, that no annual meeting
of the shareholders called since that date has been
attended by a sufficient number of shareholders to
constitute a quorum, with the result that the provision
referred to has no been eliminated from the by-laws,
and it still stands among the by-laws of the association,
notwithstanding its patent conflict with the law.
BISSELL V. THE MICHIGAN SOUTHERN N. IND. RD.
COMPANIES
FACTS: The two corporations-defendants were jointly
engaged in the business of carrying passengers and
freight between Chicago and Lake Erie, through a part
of the State of Illinois, and through the States of Indiana
and Michigan, by three connected railroads which they
owned or controlled, and the business of which was
managed under a consolidated arrangement which had
been in force between the defendants for some time
previous to the injury complained of.
They undertook and assumed to carry the plaintiff as a
passenger from Chicago, or a point near that place, that
he took his seat in their cars accordingly, and that
during the transit he was injured by an accident which
happened through their carelessness and neglect.
Defendants deny liability on the ground that one of the
companies was chartered by the legislature of
Michigan, with power to build a road in that State, and
the other by the legislature of Indiana, with power to
build one in that State. They both insist that they had no
right or power under their respective charters to
consolidate their business in the manner stated, and
especially that they could not legally, either separately
or jointly, acquire the possession and use of a
connecting road in the State of Illinois and undertake to
carry passengers or freight over the same.
They do not deny that their boards of directors and
agents, duly authorized to wield all the powers which
the corporations themselves possessed, entered into
the arrangements which have been mentioned, nor
that, in the execution of those arrangements, they
made the contract with the plaintiff to carry him as a
passenger; nor do they deny that they received the
benefit of that contract in the customary fare which he
paid. Their defense is, simply and purely, that they
transcended their own powers and violated their own
organic laws. On this ground they insist that their
business was not, in judgment of law, consolidated; that
they did not use and operate a road in Illinois; that they
did not undertake to carry the plaintiff over it; and did
not, by their negligence, cause the injury of which he
complains; but that all these acts and proceedings were,
in legal contemplation, the acts and proceedings of the
natural persons who were actually engaged in
promoting the same.
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ISSUE: WON respondents may interpose the violation of
their own charters to shield them from responsibility?
HELD: NO. Such a defense is shocking to the moral
sense.
This doctrine of theoretical perfection in corporations
would convert them practically into most mischievous
monsters.
Doctrine of theoretical perfection - Every violation of
their charter or assumption of unauthorized power on
the part of their officers, although with the full
approbation of their directors, is to be considered the
act of the officers, and is not to prejudice the
corporation itself. There would be no possibility of ever
convicting a corporation of exceeding its powers.
Corporations are said to be clothed with certain powers
enumerated in their charters or incidental to those
which are enumerated, and it is also said they cannot
exceed those powers.
When we speak of the powers of a corporation, the
term only expresses the privileges and franchises which
are bestowed in the charter; and when we say it cannot
exercise other powers, the just meaning of the language
is, that as the attempt to do so is without authority of
law, the performance of unauthorized acts is a
usurpation which may be a wrong to the State, or,
perhaps, to the shareholders. But the usurpation is
possible. In the same sense, natural persons are under
the restraints of law, but they may transgress the law,
and when they do so they are responsible for their acts.
From this consequence corporations are not wholly
exempt.
The contract of the defendants to transport the
plaintiffs from Chicago to Toledo was illegal and void,
they having, as we have seen, no power under their
charters to enter into the engagement for running their
cars on joint account between those two places. It does
not follow, however, that they are not liable to the
plaintiff in this action.
The plaintiff's claim, rests not upon his contract, but
upon the right which every man has to be protected
from injury through the carelessness of others, whether
artificial or natural person.
Pirovano v. De la Rama Steamship Co., Inc (1954)
G.R. No. L-5377. December 29, 1954
Lessons Applicable: Ratification of Ultra Vires Acts
(Corporate law)
FACTS:
Enrico Pirovano, president of the defendant
company, managed the companyuntil it became a
multi-million corporation by the time Pirovano was
executed by the Japanese during the occupation.
BOD Resolution: Out of the proceeds, the sum of
P400,000 be set aside for equal division among the 4
minor children, convertible into shares of stock of the
De la Rama Steamship Company, at par and, for that
purpose, that the present registered stockholders of the
corporation be requested to waive their preemptive
right to 4,000 shares of the unissued stock of the
company in order to enable each of the 4 minor heirs to
obtain 1,000 shares at par
if the Pirovano children would given shares of stock,
the voting strength of the 5 daughters of Don Esteban
would be adversely affected - Mrs. Pirovano would have
a voting power twice that of her sisters
Lourdes de la Rama wrote secretary of the
corporation, Atty. Marcial Lichauco, asking him to
cancel the waiver she supposedly gave of her pre-
emptive rights.
The company ammended the resolution turning it
into a loan with 5% interest payable when the
obligation can be met
The company revoked its donation of the life
premium proceeds since it is not in compliance with the
SEC
Minor children of the late Enrico represented by their
mother and judicial guardian demanded the payment of
the credit due them as of December 31, 1951,
amounting to P564,980.89
RTC: contract or donation is not ultra vires
ISSUE: W/N corporation donation of the proceeds of
insurance policies is an ultra vires act
HELD: NO. valid and binding
remunerative donation
That which is made to a person in consideration of
his merits or for services rendered to the donor,
provided they do not constitute recoverable debts, or
that in which a burden less than the value of the thing
given is imposed upon the donee, is also a donation."
(Art. 619, old Civil Code)
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In donations made to a person for services
rendered to the donor, the donor's will is moved by acts
which directly benefit him. The motivating cause is
gratitude, acknowledgment of a favor, a desire to
compensate. (Sinco and Capistrano, The Civil Code, Vol.
1, p. 676; Manresa, 5th ed., pp. 72-73.)
Donation has reached the stage of perfection which is
valid and binding upon the corporation and as such
cannot be rescinded unless there is exists legal grounds
for doing so. Donation was embodied in a resolution
duly approved by the Board of Directors on January 6,
1947
July 25, 1949: BOD approved the proposal of Mrs.
Pirovano to buy the house at New Rochelle, New York,
owned by a subsidiary of the corporation at the costs of
S75,000 .
2 reasons given for the rescission of donation in the
resolution of the corporation adopted on March 8, 1951
- valid and legal as to justify the rescission
 corporation failed to comply with the
conditions to which the above donation was
made subject
 in the opinion of the Securities and Exchange
Commission said donation is ultra vires
articles of incorporation contain:
To invest and deal with the moneys of the company
and immediately required, in such manner as from time
to time may be determined.
To aid in any other manner any person, association,
or corporation of which any obligation or in which any
interest is held by this corporation or in the affairs or
prosperity of which this corporation has a lawful
interest.
By ratification the infirmity of the corporate act has
been obliterated thereby making it perfectly valid and
enforceable. This is specially so if the donation is not
merely executory but executed and consummated and
no creditors are prejudice, or if there are creditors
affected, the latter has expressly given their confirmity
MARIA CLARA PIROVANO ET AL. vs. THE DE LA RAMA
STEAMSHIP CO.
G.R. No. L-5377. December 29, 1954
FACTS: Plaintiffs herein are the minor children of the
late Enrico Pirovano represented by their mother and
judicial guardian Estefania R. Pirovano. They seek to
enforce certain resolutions adopted by the Board of
Directors and stockholders of the defendant company
giving to said minor children of the proceeds of the
insurance policies taken on the life of their deceased
father Enrico Pirovano with the company as beneficiary.
Defendant's main defense is: that said resolutions and
the contract executed pursuant thereto are ultra vires,
and, if valid, the obligation to pay the amount given is
not yet due and demandable.
Plaintiff-appellant Pirovano is the owner of
3424 shares of stocks in defendant-appellee
Corporation which declared a dividend of P100 per
share. Appellant wants to recover from appellee the
sum of P221, 975 after deducting the sum of P120, 424
which she had withdrawn or received from appellee for
advances she received after the death of her father, the
late Esteban de la Rama.
Appellant’s theory is that the cash advances to
her for her personal use and that of her children were
assumed by Esteban de la Rama. She claims that the
advances made to her by appellees were debited from
the account of Hijos de I. de la Rama, another
corporation practically owned by Esteban de la Rama.
She further claims that the appellee can only deduct
from the amount of dividend she is entitled to, the
amount of cash advances which was not assumed by
her father. The withdrawals by the appellant were
made during the period 1940 to 1949 during which the
appellee made a deed of trust with Hijos. The deed of
trust was made to circumvent the prohibition of
declaring dividends during the period.
ISSUE: Whether or not the donation made by the
corporation of the proceeds of the insurance is a valid
act.
RULING: YES. Even assuming that the donation was ultra
vires, still it cannot be invalidated or declared legally
ineffective for that reason alone, it appearing that the
donation represents not only the act of the Board but
also that of the stockholders themselves since they
expressly ratified the resolution. By this ratification, the
infirmity of the corporate act, if any, has been
obliterated thereby making the act perfectly valid and
enforceable, especially so if the donation is not merely
executory but consummated. The defense of ultra vires
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cannot be set up against completed or consummated
transactions.
An ultra vires act may either be an act
performed merely outside the scope of the powers
granted to the corporation by its AOI or one which is
contrary to law or violative of any principle which would
void any contract. A distinction has to be made with
respect to corporate acts which are illegal and those
merely ultra vires. The former are contrary to law,
morals, public order or policy, while the latter are not
void ab initio, but merely go beyond the scope of the
powers in the AOI, and which renders the act merely
voidable and thus can be ratified by the stockholders.
The defendant corporation, therefore, is now
prevented or estopped from contesting the validity of
the donation. This is especially so in this case when the
very directors who conceived the idea of granting said
donation are practically the stockholders themselves,
with few nominal exceptions.
HARDEN VS. BENGUET MINING
GR NO. L-37331
MARCH 18, 1933
FACTS
 BENGUET CONSOLIDATED MINING was organized in
June 1903 as a sociedad anonima in conformity
with Spanish Law. BALATOC MINING CO. was
organized in December 1925 as corporation in
conformity with Act. 1459 (Corporation Law).
Harden et al. are stockholders of Balatoc Mining.
 When Balatoc Mining first organized the properties
it acquired were largely undeveloped and the
original stockholders were unable to supply the
means needed for profitable operation. (In short,
naglisud ang corporation). In order to solve such
problem, the company’s stockholders appointed a
committee for the purpose of interesting outside
capital in the mine. By authority of a resolution of
the board of directors, the committee approached
A.W. Beam, president & general manager of
Benguet Company in order to secure capital
necessary to the development of the Balatoc
property.
 A contract was signed between the 2 companies
which provide that BENGUET COMPANY was to
proceed with the development of the Balatoc
property and in return BENGUET COMPANY would
receive from BALATOC COMPANY shares of par
value of P600,000 in payment for the first P600,000
be thus advanced to it by Benguet company.
 The total cost incurred by BENGUET COMPANY in
developing the Balatoc property was P1,417,952.15.
In compensation for this work, a certificate for
P600,000 shares of stock of BALATOC COMPANY
was given to BENGUET COMPANY and the excess
value was paid to Benguet by Balatoc in cash.
 Due to the improvements made on the company’s
property, the value of the shares of BALATOC
increased in the market (from P1.00 to P11.00) and
the dividends of the company enriched its
stockholders. As soon as the success of the
company became apparent, Harden (owner of
thousands of shares of Balatoc) questioned the
transfer of 600,000 shares to Benguet. Harden
seeks to annul the certificate covering the 600,000
shares of stock transferred to Benguet.
 Main argument of Harden: It is unlawful for the
Benguet Company to hold any interest in a mining
corporation because in the former Corporation Law
(Act of Congress 1916) there is a provision referring
to mining corporations: “it shall be unlawful for any
member of a corporation engaged in agriculture or
mining and for any corporation organized for any
purpose except irrigation to be in any wise
interested in any other corporation engaged in
agriculture or in mining.”
ISSUES: (1) WON Harden et al can maintain an action
based upon the violation of law supposedly committed
by Benguet Company; (2) If Benguet Company
committed a violation, WON Benguet Company
(sociedad anonima) is a corporation within the meaning
of the language used by US Congress and later by
Philippine Congress, prohibiting mining corporations
from becoming interested in another mining
corporation
RULING: (1) WON Harden et al can maintain an action
based upon the violation of law supposedly committed
by Benguet Company
BENGUET COMPANY committed NO CIVIL WRONG
against the plaintiffs, and if a public wrong has been
committed, the directors of the Balatoc Company, and
Harden himself were the active inducers of the
commission of that wrong. THE CONTRACT WAS
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PERFORMED ON BOTH SIDES: by the building of the
Balatoc plant by the Benguet Company and the delivery
to the latter of the certificate of 600,000 shares of the
Balatoc Company.
The penalties imposed on what is now Sec. 190 (A) of
the Corporation Law for the violation of the prohibition
in question are of such nature that they can be
enforced only by a criminal prosecution or by an action
of quo warranto. However these proceedings can be
maintained only by the Attorney General in
representation of the government.
2. If Benguet Company committed a violation, WON
Benguet Company (sociedad anonima) is a corporation
within the meaning of the language used by US
Congress and later by Philippine Congress, prohibiting
mining corporations from becoming interested in
another mining corporation
Since the plaintiffs have no right of action against
Benguet Company, the COURT REFUSED TO GO
FURTHER INTO THE QUESTION AS TO WHETHER A
SOCIEDAD ANONIMA CREATED UNDER SPANISH LAW
(Bengeut Company) IS A CORPORATION WITHIN THE
PROHIBITORY PROVISION,
Sociedad Anonima is much like the English joint stock
company with features resembling those of a
partnership. Since it was the intention of Congress to
simulate the introduction of American Corporation into
Philippine law in place of sociedad anonima, it was
necessary to make certain adjustments resulting from
the continued co-existence for a time, of the 2 forms of
commercial entities. Accordingly, in section 75 of the
Corporation Law, a provision is found making the
sociedad anonima subject to the provisions of the
Corporation Law "so far as such provisions may be
applicable", and giving to the sociedades anonimas
previously created in the Islands the option to continue
business as such or to reform and organize under the
provisions of the Corporation Law. Again, in section 191
of the Corporation Law, the Code of Commerce is
repealed in so far as it relates to sociedades anonimas.
The purpose of the commission in repealing this part of
the Code of Commerce was to compel commercial
entities thereafter organized to incorporate under the
Corporation Law, unless they should prefer to adopt
some form or other of the partnership.
The provision in Section 75 of the Act Congress of July 1,
1902 (Philippine Bill), generally prohibiting corporations
engaged in mining and members of such from being
interested in any other corporation engaged in mining,
was amended by section 7 of Act No. 3518 of the
Philippine Legislature, approved by Congress March 1,
1929.
As originally drawn, our Corporation Law (Act No. 1459)
did not contain any appropriate clause directly
penalizing the act of a corporation, a member of a
corporation, in acquiring an interest contrary to
paragraph (5) of section 13 of the Act. The Philippine
Legislature undertook to remedy this situation in
section 3 of Act No. 2792 of the Philippine Legislature,
approved on February 18, 1919, but this provision was
declared invalid by this court in Government of the
Philippine Islands vs. El Hogar Filipino (50 Phil., 399), for
lack of an adequate title to the Act. Subsequently the
Legislature reenacted substantially the same penal
provision in section 21 of Act No. 3518, under a title
sufficiently broad to comprehend the subject matter.
This part of Act No. 3518 became effective upon
approval by the Governor-General, on December 3,
1928, and it was therefore in full force when the
contract now in question was made.
This provision was inserted as a new section in the
Corporation Law, forming section 190 (A) of said Act as
it now stands. Omitting the proviso, which seems not to
be pertinent to the present controversy, said provision
reads as follows:
SEC. 190 (A). Penalties. — The violation of any of the
provisions of this Act and its amendments not
otherwise penalized therein, shall be punished by a
fine of not more than five thousand pesos and by
imprisonment for not more than five years, in the
discretion of the court. If the violation is committed
by a corporation, the same shall, upon such violation
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being proved, be dissolved by quo warranto

proceedings instituted by the Attorney-General or by
any provincial fiscal by order of said Attorney-
General: . . . .

Sort of Historical Background of Introduction of

“Corporations” into the Philippines:
 When the Philippines passed to the sovereignty of
the US, Philippine Commission was drawn to the
fact that there is no entity in Spanish law which
exactly corresponded to the notion of corporation
in English and American law.
 Philippine Congress thus enacted a general law
authorizing the creation of Corporation Law (Act
No. 1459). The purpose of the commission was to
introduce the American corporation into the
Philippines as a standard of commercial entity. The
statute is a codification of American corporate law.

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